Trillion-dollar robbery

IMF says global corruption axes tax revenues

Business reporter

Sunday, April 14, 2019

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A new report published by the International Monetary Fund (IMF) has estimated that Government corruption has robbed the world of US$1 trillion in tax revenues or 1.25 per cent of global GDP.

The report, entitled Fiscal Monitor – Curbing Corruption, revealed that the least corrupt governments collect 4 per cent of GDP more in tax revenues than their peers with the highest levels of corruption based on an analysis of countries at similar income levels.

“Based on such cross-country comparisons, if all countries today were to reduce corruption by a similar extent, on average, as those that reduced it over the past two decades, global tax revenues could be higher by US$1 trillion, or 1 per cent of global GDP,” the IMF said.

“The gains would likely be greater considering that lower corruption would increase economic growth, further boosting revenues. Countries that managed to reduce corruption significantly were rewarded with surges in tax revenues as a share of GDP,” the Fund continued.

It referenced Georgia which has seen tax surges of 13 percentage points and Rwanda of 6 percentage points.

According to the Fund, evidence also suggests that corruption distorts how governments use public money. The IMF added that less corrupt countries dedicate a higher share of resources to social spending including education and health while more corrupt countries are forced to overpay for building roads and hospitals, as well as impacts the education level of the country.

“Fighting corruption requires mustering political will. To ensure lasting improvements, however, it also requires developing good institutions to promote integrity and accountability throughout the public sector,” IMF said.

The IMF's warning comes amidst expectation that global economic growth will 'soften'. According to the report, growth is expected to slow this year in several large advanced and emerging market economies including China, Europe and United States.

The downside risks have risen mainly from unresolved trade tensions, heightened policy uncertainty, and financial market volatility. According to the Fund, major economies like China and the United States have turned to expansionary fiscal policies and tighter financial conditions and concerns over fiscal sustainability have pushed up borrowing costs in vulnerable advanced, emerging market, and frontier market economies.

The IMF, however, noted that low-income developing countries where there is limited budgetary room, adaptation will have to occur through budget re-composition.

“Key to this process will be reprioritizing expenditures to achieve cost savings by cutting “wasteful spending and curbing corruption in all countries. For example, removing fuel subsidies through efficient pricing could gradually yield up to 4 per cent of global GDP in additional fiscal resources…Managing public sector assets more effectively could yield up to an estimated 3 per cent of GDP a year in additional revenue in some countries,” the report read.

It noted that where corruption leakages occur in government operations, institutions should focus on “hotspots” where international experience suggests that corruption occurs frequently such as public procurement, infrastructure,

complex goods and services that are hard to price, natural resources, and public enterprises.

The IMF also noted that countries should be more proactive in combating bribery by national companies that bribe officials in foreign countries, aggressively pursuing anti–money laundering activities, and reducing opportunities to hide corruption proceeds in opaque destinations, in addition to enforcing greater transparency.

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